Debit: Speaking of budget busters, the most recent actuarial report for the city of Chicago reveals that every household in the Windy City would have to pony up $140,000 to make state and municipal pensions solvent. That’s funny; considering the vast majority of those same Chicago households most likely have nothing saved for their own retirement. Does anybody else see a problem here? No? Okay … then how about here:

Debit: Then again, it’s not just Chicago; the debt for Illinois’ five state-run pension funds covering teachers, university employees, judges, lawmakers and other state employees climbed $4 billion to $134 billion in fiscal 2018 — this despite a strong stock market and billions from taxpayers. You think people are finally starting to realize that those unrealistic benefit promises will eventually have to be broken? Me neither.

Credit: On a related note, the central bank for the world’s central banks, the Bank for International Settlements (BIS), is yet again warning that the global financial system is unstable and ripe for a frightening chain-reaction collapse. They say the reason is rising US interest rates, which are exposing the debt market weak links. The real reason is that our debt-based monetary system is nearing its mathematical limit.

Debit: It’s been a nice ride but, 47 years after officially decoupling the dollar’s link to gold, the global fiat-currency monetary system is now on the nasty section of the exponential debt curve. Worldwide debt hit a record $184 trillion in the last year; that’s $86,000 per person and more than double the average per-capita income. Overall, worldwide public and private debt is 225% percent of global GDP. Uh oh.

Debit: By the way, unlike in 2008, the Fed will be unable to “save” us during the next financial crisis, as it has $4.1 trillion in bonds on its balance sheet. And its massive portfolio has suffered substantial paper losses thanks to sharply rising bond yields. In fact, the Fed suffered a $66 billion loss last quarter. Even worse, it only has $39 billion in capital — which means the Fed is now technically insolvent. Imagine that.

Credit: Of course, in the real world, negative balance sheets lead to bankruptcy. However, the Fed gets to create “money” out of thin air — which is why former Fed governor Kevin Warsh told Bloomberg this week that “a central bank with a negative net worth matters not, in theory. But in practice, it risks chipping away at Fed credibility.” Psst. Hey, Kevin — the Fed lost its credibility a while ago. And I mean all of it.

Credit: Meanwhile, the so-called “everything bubble” is deflating as tighter central bank monetary policies weaken credit markets, leading over-indebted nations to struggle with dollar shortages and rising debt-service costs. But as banker Satyajit Das notes, “The fact that it’s happening relatively slowly shouldn’t blind us to the real threat: The world is dangerously underestimating how hard it’ll be to deal with the fallout once it pops.” Just ask these guys who know all about underestimating danger:

Debit: Needless to say, those tighter monetary policies are also impacting stawks — and not in a good way. The stock market ended its worst week in ten years and is on pace for its worst December since 1931. For the week, the Dow and S&P 500 each fell 7%; and they’re both down 10% for the year. As for the Nasdaq, it lost 8.3%; the index is 22% below its August all-time high. Yes, that officially puts it in a bear market. Yikes.

Debit: And, finally … Last December, 35% of Americans said the economy would get better in 2018, while only 20% said it would get worse. This year, it’s a different story: 33% expect the economy to get worse next year, while just 28% say it will improve; that’s the highest level of pessimism since 2013. And if you think Americans are pessimistic now, just wait until they get their 401k statements next month.

The Question of the Week

Do you expect the economy to be better or worse in 2019 than it was in 2018?

More than 1700 Len Penzo dot Com readers answered last week’s question and it turns out that just under half will be spending somewhere between $101 and $500 on Christmas gifts this holiday season. while slightly more than 1 in 7 have a budget of $100 or less. By the way, for those thinking of giving their true love all of the gifts mentioned in the “12 Days of Christmas” carol, the total price tag this year is $39,034.

(The Best of) By the Numbers

Christmas is the most widely observed cultural holiday in the world. Here’s how Americans observe it:

Every week I feature the most interesting question or comment — assuming I get one, that is. And folks who are lucky enough to have the only question in the mailbag get their letter highlighted here whether it’s interesting or not! You can reach out to me at: Len@LenPenzo.com

I disagree, Stewie. I don’t think the central banks have a freaking clue what they’re doing and are making it up as they go along. What they do know is that their debt-based fractional reserve monetary system is a scam and is mathematically guaranteed to implode one day — which they will never admit. It was easy selling the ruse in the early days, but the math is making life much harder for them now.

Len, we know we’re on, as you smartly put it, “the nasty part” of the exponential debt curve because the degree of financialization going on today. It’s more than 20 percent, but in a healthy economy it should be less than 5%.

Oops. Yes! Thanks for pointing that out, Sam. (There is a big difference between capitalism and crony capitalism; the latter isn’t capitalism at all.)

9

Christiansays

New reader here. Nice blog, Len!

Capitalism in its purest form is the greatest system ever invented by man! That said, unchecked capitalism that allows those in power to take advantage of the system without consequences ultimately destroys the original concept.

10

Len Penzosays

Thank you, Christian — and welcome aboard!

11

RD Blakesleesays

“… every household in the Windy City would have to pony up $140,000 to make state and municipal pensions solvent.”

One often sees the observation that “the taxpayers” are ultimately on the hook for this-and-that (bank bailouts, for example).

Actually, taxpayers could not possibly pay an actual tax sufficient to liquidate any of this debt. So, they are supposed to be saddled with it?

Nonsense – the debt cannot be “repaid” in any real sense. A lot of “wealth” will disappear.

Possible good news: The follow-on remonitization may more realistically price assets, which will enhance the average joe’s net worth relative to what it had been when the prior financial elites were enriching themselves.

Actually, there is a fundamental problem with capitalism and that is the very strength and motivation which drives it leads to ever-increasing wealth, owned by the most competent at acquiring it. It would be nice if altruism and other ethical constraints limited that, but it doesn’t. History is plain to see about that.

So we, with our constitutional system, install checks and balances, but these are ultimately corrupted, also.

But am I an enemy of capitalism? No. As Winston Churchill said “Democracy (in this case, in the economic sphere) is the worst form of government, except for any other”.

Hubris eventually results in systemic failure and resurrection, but it ain’t an easy process.

There are time when the zeitgeist finds a populace enjoying a universally agreed-upon goal, but these times don’t last. An example would be the populace’s unified effort to win WWII.

17

Cherry Macksays

Ivan Maldonado’s free resource guide Head Start 2 Riches is definitely a great way to ring in the New Year. I’d recommend that anyone who is interested in learning to build wealth and create financial freedom for their family check it out at headstart2riches . com. I can definitely say, this book has helped change me and my family’s life for the better.

Cherry, My Grandfather (who will be featured in the next “Grandfather Says” article) use life insurance (among other investments) as described in the book you recommend and did very well by his children.

One can build a heritable estate other ways, building and growing a business, for example. Some may prefer that more “hands on” process.

I’m a simple guy, but it seems to me that the Illinois pension fiasco is a symptom of an underlying issue about people who literally believe they are entitled to the fruits of others labor. My question to these people is, how much of the earnings from my labor belongs to you, and why? For some reason I never receive an answer.

I feel this really is going to get ugly soon, Stan. If the state of Illinois continues to increase taxes on people with no retirement savings of their own in a futile attempt to maintain lavish government pension benefits, they’re asking for trouble. Government is supposed to serve the people; that has clearly been reversed. The people now exist to serve the government.

Congratulations, Chris, on making the decision to pay off your credit card debts!! Personally, I take great inspiration from this and other blogs as I move towards financial freedom. Hopefully you have or find an inspiration to keep you going too!!

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